The Affordable Housing Index prepared by Technical Studies Inc. (ETI) decreased in March of this year, following the continued increase in home prices and the deterioration of purchasing power due to inflation, which makes it more difficult for families to qualify for mortgages.
“In recent months the Affordable Housing Index has deteriorated reaching 69% in March 2022, a reduction of 31 percentage points from March 2020″, informed the economist Leslie Adames, director of Analysis and Economic Policy of ETI. “In other words, the typical family has only 69% of the income necessary to qualify for a mortgage loan, considering a down payment of 20%.”
The Affordable Housing Index, prepared by ETI, measures whether a typical family that contributes 20% up front toward buying a home may or may not qualify, based on median income, for a home loan. A value equal to 100% means that the family has the necessary income to qualify based on the average price prevailing in the market. A value above this threshold assumes you have more than enough income to qualify for a home loan, while values below this threshold reflect the opposite.
Adames explained that this Index stood at 61% in January 2011 and had been gradually improving, reaching a maximum value of 100% in March 2020. “This improvement is attributed to the historically low interest rate levels that prevailed in the market during this period, as well as the correction in prices experienced by the real estate market”, said Adames.
“Without a doubt, the increase in the average price of homes and the deterioration in purchasing power due to inflation already affect the ability of people to buy homes. Figures released by the Office of the Commissioner of Financial Institutions show that total home sales contracted from 3,286 in the first quarter of 2021 to 2,776 in the first quarter of 2022primarily attributable to an 18% contraction in sales of used housing units,” commented the economist.
Adames highlighted that the Index reflects that the most recent figures published by OCIF as of March considered an average sale price of $193,813, and a 30-year fixed interest rate of 4.17% for March.
“The outlook may get complicated in the coming year if the upward trend in interest rates on mortgage loans with 30-year fixed rates continues. This rate has already exceeded 6% and will be an additional factor that will add pressure on the affordability of housing in the local market and, therefore, on mortgage originations and home sales,” Adames analyzed.